Journal Issue: Special Education for Students with Disabilities Volume 6 Number 1 Spring 1996
Did the Medicaid Expansions Crowd Out Employer-Sponsored Insurance?
Between 1988 and 1993, the proportion of all children with Medicaid coverage increased by only seven percentage points, and the percentage with both Medicaid coverage and employer-sponsored coverage increased by two percentage points. The proportion with employer-sponsored coverage declined by only nine percentage points. The proportion of uninsured children increased by almost half a percentage point—nearly one million children (see Table 1). That these increases in Medicaid coverage occurred along with large declines in employer-sponsored coverage makes it plausible that Medicaid did crowd out some employer-sponsored coverage as has been recently argued by David Cutler and Jonathan Gruber.12
However, at the same time the Medicaid expansions were being implemented, changes in the employer-sponsored insurance market were occurring. Specifically, the share of premiums being borne by employees was increasing, and employers were reducing their offers for and financing of insurance coverage, especially for dependents.8 In addition, the period was marked by a recession with an accompanying increase in unemployment and, hence, possible loss of employer-sponsored health insurance coverage. These factors were likely to result in declines in employer-sponsored insurance for children separate from the expansions. Children who lost their employer-sponsored coverage for these reasons either enrolled in Medicaid or became uninsured. In this analysis, the decline in employer-sponsored coverage of children that is attributable to the secular declines in coverage is separated from the decline that is attributable to the expansions, and only the latter is considered to be crowd-out. Once that part of the decline in employer-sponsored coverage that is the result of factors beyond the secular declines had been identified, total crowd-out effect is estimated. Total crowd-out effect is defined as the percent of the total increase in Medicaid coverage of children, which is the result of the decline in employer-sponsored coverage related to the expansions (in other words, not related to secular declines).
To assess the extent of crowding-out, changes in insurance coverage for poor children (those with family incomes up to 100% of poverty) and near-poor children (those with family incomes from 100% to 133% of poverty), the two groups most affected by the expansions, are examined separately (see Table 2). The crowd-out analysis is limited to children under age 11 because these are the children who were affected by the expansions. To control for secular trends in health insurance coverage, the experience of these children is compared with the experience of a group of individuals not affected by the expansions—men ages 18 to 44.21
For poor children (those in families with incomes below the federal poverty line), the proportion reporting only Medicaid coverage increased by 10 percentage points and the proportion reporting only employer-sponsored coverage decreased by more than two percentage points. Thus, the share of poor children who were uninsured fell by almost eight percentage points. This pattern suggests that the expansions resulted in a decline in the number of uninsured children in poverty and that there was little crowding out of employer-sponsored insurance for this group. Given the dramatic drop in the share of these children who were uninsured, the expansions in Medicaid appear to have provided a safety net for children living in poverty.
For near-poor children (those with family incomes from 100% to 133% of the federal poverty line), the trends are different. There was a large (21-percentage-point) decline in children with only employer-sponsored coverage and a commensurate increase in those with only Medicaid coverage. The share of near-poor children with both Medicaid and employer-sponsored coverage also increased substantially. The share of near-poor children who were uninsured declined by 10 percentage points. These trends suggest not only that Medicaid may, indeed, have crowded out employer-sponsored coverage for near-poor children, but also that the expansions reduced the share of children in these income and age groups lacking insurance coverage.
Although plausible, the crowding-out hypothesis is not the only possible explanation for the observed trend in private insurance coverage for near-poor children. As mentioned earlier, changes in the private insurance market over the same period—rising premiums and increased cost sharing by employees—could have accounted for reduced private coverage, which would not be considered to be crowding out. To further identify the reasons for reduced employer-sponsored insurance among poor and near-poor children, the trend in insurance coverage for men ages 18 to 4421—a group unaffected by the Medicaid expansions—was compared with the trends for children under age 11 in the same income groups (see Figures 1 and 2).
Between 1988 and 1993, the proportion of men ages 18 to 44 with family incomes under 100% of poverty with employer-sponsored coverage declined by two percentage points, and the share who were uninsured declined by three percentage points. For men ages 18 to 44 with family incomes between 100% and 133% of poverty, employer-sponsored coverage declined by eight percentage points. The proportion without insurance increased by five percentage points. The larger declines in employer-sponsored coverage for children relative to men in the same income group suggests that some crowding out of employer-sponsored insurance did occur. But the fact that employer-sponsored coverage for men declined at all suggests that some of the switching from employer-sponsored coverage to Medicaid for children was unrelated to the expansions.
How much of the decline in employer-sponsored coverage can be attributed to crowding out? To account for changes that were occurring in the provision and take-up of employer-sponsored coverage irrespective of Medicaid changes, controlling for income, it is assumed that the trends for men are predictive of what would have occurred for children in the absence of the expansions. To account for the possibility that some portion of the increase in near-poor children reporting both Medicaid and employer-sponsored coverage is the result of crowd-out, it is assumed that half of this increase is attributable to the substitution of Medicaid for employer-sponsored coverage (crowd-out) and that half is attributable to other factors.
The total crowd-out effect is estimated in four steps. First, the percentage point decline in employer-sponsored coverage attributable to crowd-out is estimated. To do this the percentage point decline in employer-sponsored coverage for men is subtracted from the percentage point decline in employer-sponsored coverage of children for each income group (poor and near poor) to control for the secular declines.22 Second, half of the percentage point increase in children reporting both Medicaid and employer-sponsored coverage is subtracted to account for crowding out in this group.23 These calculations produce an estimate of the percentage point decline in employer-sponsored coverage that is attributable to crowd-out. It is estimated that, of the decline in employer-sponsored coverage for the near poor and poor, six percentage points for the near poor and one percentage point for the poor are attributable to crowd-out.
Third, the percentage point decline in employer-sponsored coverage attributable to crowd-out obtained in the first two steps is divided by the percentage point increase in Medicaid, again separately by income group.24 The third step produces estimates of the proportion of the increase in Medicaid coverage of children attributable to the crowding out of employer-sponsored coverage for the poor and near-poor groups. Based on these calculations, it is estimated that 22% and 15% of the increase in Medicaid coverage for the near poor and poor, respectively, is attributable to crowd-out. Finally, an average across the two income groups is estimated using weights equal to the proportion of the increase in Medicaid coverage accounted for by each income group to obtain the total crowd-out estimate.25 Thus, the total crowd-out effect is defined as the proportion of the increase in Medicaid coverage of children that is attributable to the crowding out of employer-sponsored coverage.
Using this method, it is estimated that 17% of the total increase in Medicaid enrollment, which occurred between 1988 and 1993 for young children with incomes below 133% of poverty, is attributable to the crowding out of employer-sponsored coverage. When it is assumed that all of the increase in those reporting both Medicaid and employer-sponsored coverage is attributable to crowd-out, then an upper bound on the total crowd-out effect is estimated to be 26%.26